Thursday, November 13, 2008

Dramatic Decline In U.S. Exports

Today's trade report confirmed what I had expected: namely that the overall U.S. trade deficit would decline because of the dramatic decline in the price of oil, but that the stronger dollar and weaker foreign economies would cause U.S. exports to collapse and cause a significant increase in the non-oil deficit (as the effect of these two factors are clearly negative on exports and ambigious on imports).

In the coming reports, we should see a continued dramatic increase in the non-oil deficit combined with a similar dramatic decline in the petroleum deficit. What this implies is that in the headline volume statistics, foreign trade will be a significant drag on the economy as these statistics ignore the terms of trade factor. Properly measured, which is to say terms of trade adjusted, the effect will be moore neutral. But as foreign trade is usually expected to be a positive during downturns, the fact that it isn't now is still a drag.


Anonymous Mover Mike said...

Stefan where's the decline?

The story line from the Washington Times was “A record decline in the price of crude oil helped to push the U.S. trade deficit down to the lowest level in nearly a year even though the deficit with China shot up to an all-time high.”

But, what did the record decline do for us? Comparing September, 2008 -56,470 with last year September -55,464, doesn’t show any improvement at all, but an increase over last year and a look at the first nine months versus last year, shows an increase. Please note the previous announcements in 2008 and the Revised (R) numbers. Only one month was revised lower and that was July.

4:51 AM  
Blogger stefankarlsson said...

I am comparing September 2008 with August 2008, not September 2007.

10:17 AM  

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